Introduction
Theoretical background
CEO narcissism and brands
CEO narcissism and firm-level outcomes
Hypotheses
CEO narcissism and brand acquisition/disposal decisions
CEO narcissism and brand awareness
The mediating path: CEO narcissism and the target brand asset overvaluation
The mediating path: Target brand asset overvaluation on abnormal returns
Moderating effects of brand awareness and perceived quality
Methods
Data and sample
Measures
Variable | Label | Definitions | Source |
---|---|---|---|
Main variables | |||
Brand transaction | Brand Transaction | 1 if the brand was disposed of by the focal company (acquired by another company), 0 otherwise. | SDC premium |
Abnormal return | AR | Abnormal return associated with the brand acquisition or disposal event (Fama-French momentum model). | CRSP |
Brand awareness | Awareness | The target brand’s brand familiarity rating. | EquiTrend |
Perceived quality | Quality | The target brand’s perceived quality rating. | EquiTrend |
Brand asset overvaluation | Brand Overvaluation | Residual obtained by regressing financial value of brand asset onto brand performance benchmarks (customer mind-based rating, financial value-based ranking, customer loyalty, firm profitability). | SEC filing Equitrend Brand Finance ranking BAV COMPUSTAT |
Narcissism | Narcissism | The mean of the standardized values of CEO photo size rating, CEO relative media exposures ratio, and CEO relative compensation ratio. | Edgar; Factiva |
Brand-level control variables | |||
Brand media coverage | Media Coverage | The total number of press releases about the target brand in mainstream media. The degree to which external observers are interested in the brand/firm may facilitate or hinder the company’s strategies (Tan 2016). | Factiva |
Brand performance | Brand Performance | 1 if a brand features on the Brand Finance Global 500 list in the year before the announcement and 0 otherwise (Gielens et al. 2018). A brand’s power can influence the deal’s performance. | Brand Finance global 500 |
Deal-level control variables | |||
Deal value | Deal Value | The present log value of incremental future cash flows that accrue to the target brand. Deal value can influence firm decisions and financial returns (Aktas et al. 2016). | SDC premium; SEC filing |
Cash | Cash | 1 if the payment is all in cash, 0 otherwise. Cash payment can affect deal-related firm decisions (Aktas et al. 2016). | SEC filing |
Multiple bidders | Multiple Bidders | 1 if more than one potential bidder is mentioned in the relevant SEC filing, 0 otherwise. Competition among bidders can affect deal-related firm decisions (Aktas et al. 2016). | SEC filing |
Industry relatedness | Industry Relatedness | 1 if the acquirer and the target have the same 2-digit SIC codes, 0 otherwise. The fit between the participants can influence decisions and performances (Wiles et al. 2012). | Announcement |
Motive of acquisition/disposal | Motive Growth, Motive Profit, Motive Strength, Motive Debt, Motive Buyback | 1 if the acquirer’s motive is to grow the business, increase profit, or strengthen the core business; 0 otherwise. 1 if the seller’s motive is to pay debt or buy back shares, 0 otherwise. Motives behind the transaction can affect investors’ reactions (Wiles et al. 2012). | Announcement |
Earnings impact | Earnings Impact | Whether the analysts expect the acquisition/disposal would have an accretive (1), dilutive (−1), or no impact (0) on the year’s earnings. Analysts’ expectations may affect the stock market reactions (Wiles et al. 2012). | Announcement |
Transaction trend | Transaction Trend | The number of brand acquisitions and disposals in the industry. | Announcement |
Entire firm114 | 1 if purchasing the brand involves acquiring an entire firm, 0 otherwise. Buying entire firms for their brand assets may reduce returns (Wiles et al. 2012) | Press reports | |
Firm-level control variables (firms’ financial characteristics at t-1 may shape aspirations and thus affect a CEO’s motivation to change the brand portfolio and also affect the returns) | |||
Firm age | Age | Firm age. | Field-Ritter |
Firm size | Size | Log of firm assets. | Compustat |
Marketing capability | Mktg Capability | Efficiency score from stochastic frontier estimation (Dutta et al. 2005; Bahadir et al. 2008). Acquirer and seller firms with stronger marketing capability may expect a higher level of cash flow from the target brand (Bahadir et al. 2008) because they can more effectively leverage the target brand by improving cost-efficiency or extending the brand to new markets. This could increase brand asset overvaluation. | Compustat, patent databases |
Brand portfolio diversity | Brand Diversity | The number of brands/number of categories. Acquirer firms with a broader brand portfolio may expect a higher level of cash flow from the target brand because they are more likely to enjoy the economies of scale in marketing spending and to keep the target brand active after the acquisition. The seller firms with a diverse brand portfolio also have more strategic options to extend the brands and grow the business (Bahadir et al. 2008). This could increase the possibility of brand asset overvaluation. | Compustat, USPTO |
Sales growth | Sales Growth | The current change in sales. | Compustat |
Market share | Market Share | The firm’s sales divided by the 3-digit SIC group’s total sales over the fiscal year. | Compustat |
Advertising expense | Advertising | Log of selling, general, and administrative expense (SGA) expenditures. | Compustat |
R&D expense | R&D | Log of R&D expenditures. | Compustat |
Leverage | Leverage | Financial leverage. | |
ROA | ROA | Operating income divided by assets. | Compustat |
Target industry competition | Concentration | The sum of the top three market shares in the seller firm’s four-digit SIC code. A stronger industry competition may affect the valuation of assets. | Compustat |
Acquirer financing consideration | Acquirer Financing Consideration | Short-term debt t-1/total assets t-1, reflecting the firm’s need to raise capital in the short term (Bahadir et al. 2008). | Compustat |
CEO compensation | CEO Compensation | Compensation of the CEO in the year. | Edgar/ExecuComp |
CEO ownership | CEO Ownership | The percentage of shares owned by the CEO out of shares outstanding. | Edgar/ExecuComp |
CEO tenure | CEO Tenure | Tenure length of the CEO in the year. | Edgar/ExecuComp |
CEO age | CEO Age | The CEO’s age in the year. | Edgar |
CEO tenure | CEO Tenure | The number of years of CEO’s tenure. | SEC |
Board independence | Board Indep | Percentage of the independent directors on the board. | SEC |
CEO insider | CEO Insider | 1 if the CEO is hired from inside the company, 0 otherwise. | SEC |
Adulthood recession | Adulthood Recession | The average national unemployment rate during the years when the CEO’s ages are 18–25. | Edgar |
Models
Results
Variable | Mean | SD | Min. | Max. |
---|---|---|---|---|
Brand disposal sample | ||||
Brand Disposal | .473 | .427 | 0 | 1 |
Seller Narcissism | .037 | .435 | −.538 | 2.978 |
Brand Awareness | 65.353 | 28.34 | 55.23 | 93.68 |
Perceived Quality | 6.364 | .712 | 5.25 | 8.32 |
Media Coverage | 16.668 | 63.346 | 0 | 267 |
Brand Performance | .491 | .326 | 0 | 1 |
Leverage | .263 | .378 | −.034 | 7.026 |
ROA | .054 | .391 | −.897 | 1.523 |
Firm Size (ln) | 9.823 | 1.992 | 3.123 | 14.795 |
Sales Growth | .032 | .526 | −2.165 | 2.236 |
Market Share | .414 | .365 | .065 | .951 |
CEO Compensation ($million) | 11.496 | 12.645 | 0 | 380 |
CEO Age | 55.153 | 8.235 | 28 | 100 |
CEO Tenure | 5.659 | 7.974 | 0 | 54 |
CEO Ownership (%) | 1.593 | 4.562 | 0 | 49.213 |
Board Indep | .758 | .084 | .111 | .933 |
CEO Insider | .886 | .317 | 0 | 1 |
Adulthood Recession | .068 | .015 | .040 | .077 |
Transaction Trend | 6.666 | 11.038 | 0 | 71 |
Brand acquisition sample | ||||
Brand Acquisition | .542 | .336 | 0 | 1 |
Acquirer Narcissism | .018 | .473 | −.538 | 8.194 |
Awareness | 61.893 | 7.995 | 32.373 | 79.779 |
Quality | 6.008 | .562 | 5.329 | 7.293 |
Media Coverage | 14.988 | 66.039 | 0 | 269 |
Brand Performance | .553 | .581 | 0 | 1 |
Leverage | .281 | .454 | −.056 | 7.693 |
ROA | .059 | .480 | −.778 | 1.477 |
Firm Size (ln) | 8.894 | 2.949 | 2.881 | 10.732 |
Sales Growth | .148 | .265 | −2.126 | 2.129 |
Market Share | .369 | .222 | .032 | 1 |
CEO Compensation($million) | 10.510 | 9.662 | 0 | 160 |
CEO Age | 54.710 | 7.057 | 28 | 100 |
CEO Tenure | 4.815 | 6.449 | 0 | 52 |
CEO Ownership (%) | 1.028 | 4.713 | 0 | 48.560 |
Board Indep | .659 | .194 | .136 | .893 |
CEO Insider | .709 | .455 | 0 | 1 |
Adulthood Recession | .066 | .016 | .040 | .077 |
Transaction Trend | 6.852 | 10.774 | 0 | 71 |
Variable | Mean | SD | Min. | Max. |
---|---|---|---|---|
AR Acquisition (%) | −.145 | 3.229 | −11.476 | 21.627 |
AR Disposal (%) | .716 | 2.045 | −12.213 | 22.323 |
Acquirer Narcissism | .019 | .415 | −.538 | 7.168 |
Seller Narcissism | .036 | .348 | −.538 | 2.978 |
Brand Asset Overvaluation | 0.01 | 2.375 | -3.176 | 8.133 |
Brand Awareness | 64.921 | 19.523 | 55.230 | 93.680 |
Perceived Quality | 6.032 | .912 | 5.250 | 7.620 |
Seller Peer Awareness | 65.353 | 12.625 | 57.360 | 91.520 |
Seller Peer Quality | 6.152 | .712 | 5.250 | 8.320 |
Deal Value (ln) | 6.941 | 5.881 | 2.703 | 11.778 |
Industry Relatedness | .825 | .380 | 0 | 1 |
Media Coverage | 14.568 | 59.256 | 0 | 853 |
Brand Performance | .593 | .486 | 0 | 1 |
Entire Firm | .556 | .533 | 0 | 1 |
Cash | .421 | .581 | 0 | 1 |
Multiple Bidder | .368 | .621 | 0 | 1 |
Seller Mktg Capability | 78.62 | 19.56 | 4.620 | 100.100 |
Seller Brand Diversity | 7.261 | 6.329 | 1 | 21.5 |
Seller Concentration | .525 | .231 | .079 | .894 |
Seller Sales Growth | .123 | .316 | −2.985 | 5.689 |
Seller Firm Size (ln) | 8.649 | 2.156 | 3.213 | 15.792 |
Seller Advertising (ln) | 7.795 | 1.565 | 1.869 | 11.423 |
Seller R&D (ln) | 6.762 | 1.032 | 1.816 | 9.369 |
Seller Leverage | .216 | .303 | −.025 | 1.966 |
Seller ROA | .059 | .152 | −.762 | 1.493 |
Motive Debt | .147 | .354 | 0 | 1 |
Motive Buyback | .009 | .097 | 0 | 1 |
Seller Earnings Impact | .041 | .199 | −1 | 1 |
Acquirer Mktg Capability | 75.264 | 26.369 | 2.265 | 98.263 |
Acquirer Brand Diversity | 8.562 | 10.326 | 1 | 22.5 |
Acquirer Financing Consideration | .034 | .028 | 0 | .189 |
Acquirer Sales Growth | .163 | .289 | −2.123 | 4.965 |
Acquirer Firm Size (ln) | 10.521 | 1.967 | 3.189 | 14.796 |
Acquirer Advertising (ln) | 8.782 | 1.363 | 1.821 | 11.467 |
Acquirer R&D (ln) | 7.296 | 1.384 | 1.017 | 9.469 |
Acquirer Leverage | .263 | .226 | −.015 | 3.675 |
Acquirer ROA | .072 | .190 | −.765 | 1.526 |
Motive Profit | .143 | .350 | 0 | 1 |
Motive Strength | .241 | .428 | 0 | 1 |
Motive Growth | .147 | .354 | 0 | 1 |
Acquirer Earnings Impact | .257 | .451 | −1 | 1 |
Acquirer CEO narcissism | Seller CEO narcissism | |||
---|---|---|---|---|
Variable | Coefficient | S.E. | Coefficient | S.E. |
Adulthood Recession | −.475*** | .128 | −.293** | .147 |
CEO Ownership | .081** | .040 | .086** | .043 |
CEO Tenure | .005** | .002 | .004** | .002 |
Board Indep | −.020 | .212 | .015 | .152 |
CEO Insider | .081** | .034 | .079** | .038 |
CEO Age | .002** | .001 | .003** | .001 |
Media Coverage | .000 | .000 | .000 | .000 |
Firm Size | .044*** | .014 | .015 | .030 |
ROA | .179** | .082 | .183** | .091 |
Sales Growth | −.020 | .036 | −.024 | .043 |
Market Share | .065 | .058 | .061 | .063 |
Adjusted R-Square | .436 | .385 |
Brand disposals | Brand acquisitions | |||
---|---|---|---|---|
Variable | Coefficient | S.E. | Coefficient | S.E. |
CEO Narcissism | −.811*** | .241 | .358** | .154 |
Brand Awareness | .037 | .045 | .346*** | .027 |
Perceived Quality | .014 | .075 | .234*** | .025 |
Media Coverage | .006** | .003 | .001 | .001 |
Brand Performance | −.009 | .815 | .002 | .167 |
Leverage | −1.164** | .517 | .827 | .412 |
ROA | 6.523** | 3.29 | −1.594 | .844 |
Firm Size | .005 | .128 | .038 | .035 |
Sales Growth | −.302* | .162 | .076 | .164 |
Market Share | .589 | .604 | .739*** | .196 |
CEO Compensation | −.019 | .028 | −.003 | .005 |
CEO Age | .017 | .031 | −.016 | .010 |
CEO Tenure | −.089 | .059 | .024** | .011 |
Transaction Trend | −.081** | .039 | .023*** | .007 |
p | 3.751 | 3.262 | 2.364 | 2.957 |
Adjusted R-Square | .451 | .589 |
Fixed effect model | Probit model | |||||||
---|---|---|---|---|---|---|---|---|
Acquire_strong_brand | Dispose_strong_brand | Acquire_strong_brand | Dispose_strong_brand | |||||
Variable | Coef. | Std. Err. | Coef. | Std. Err. | Coef. | Std. Err. | Coef. | Std. Err. |
CEO Narcissism | .292** | .133 | −.391** | .198 | .935** | .412 | −1.833*** | .596 |
Perceived Quality | .005* | .003 | .006* | .003 | .012* | .007 | .016* | .009 |
Peer Brand Awareness | .064** | .029 | .012* | .007 | .116** | .058 | .053** | .023 |
Deal Value | −.002 | .017 | −.006 | .015 | .005 | .001 | −.022 | .065 |
Brand Performance | .224** | .101 | .093 | .112 | .572** | .238 | .139 | .092 |
Industry Relatedness | −.091 | .116 | .047** | .022 | −.325 | .357 | −.013 | .365 |
Media Coverage | −.001 | .001 | −.001 | .001 | .001 | .001 | .001 | .001 |
Entire Firm | −.515 | .715 | −.796** | .324 | −1.553* | .852 | −.817 | .836 |
Sales Growth | −.040 | .282 | −.664** | .301 | −1.085 | 1.006 | 1.102** | .506 |
Market Share | −.634** | .323 | .106 | .178 | −2.272** | 1.063 | .763 | .642 |
Firm Size | .047 | .036 | −.065 | .055 | .113 | .110 | −.216 | .259 |
Advertising | .335 | .367 | .216*** | .103 | .794*** | .296 | .278* | .161 |
R&D | .759 | .426 | −.311 | .257 | −.198 | .246 | .775*** | .272 |
Leverage | −.562 | .370 | .036 | .267 | −1.224 | 1.812 | 1.192 | 1.556 |
ROA | 1.964*** | .705 | −3.603*** | .859 | −1.978*** | .724 | −7.165*** | 4.42 |
λ | −.393 | .327 | −.173 | .226 | .424 | 1.725 | −.726 | .863 |
p | .215 | .416 | .315 | .463 | 1.348 | 1.453 | 1.786 | 1.554 |
Adjusted R-Square | .462 | .448 | .231 | .324 |
Brand Overvaluation | Brand Overvaluation (robustness test measurement) | |||
---|---|---|---|---|
Variable | Coef. | Std. Err. | Coef. | Std. Err. |
Acquirer Narcissism | .410** | .180 | .471** | .211 |
Seller Narcissism | .224** | .103 | .149** | .068 |
Brand Awareness | .008** | .004 | .007** | .003 |
Perceived Quality | .015 | .012 | .085 | .049 |
Peer Brand Overvaluation | .325** | .158 | .959*** | .259 |
Deal Value | .993*** | .113 | .989*** | .268 |
Industry Relatedness | .092 | .078 | −.013 | .035 |
Brand Performance | .230 | .125 | .129 | .098 |
Media Coverage | .000 | .000 | .001** | .000 |
Entire Firm | .108** | .051 | .141** | .063 |
Cash | .381** | .189 | .521** | .265 |
Multiple Bidder | −.372 | .612 | −.397 | .461 |
Seller Mktg Capability | .008** | .004 | .006** | .003 |
Seller Brand Diversity | .061 | .235 | .023 | .012 |
Seller Concentration | .095 | .103 | .131 | .156 |
Seller Sales Growth | .365 | .275 | .457** | .191 |
Seller Firm Size | .177*** | .055 | .916*** | .258 |
Acquirer Mktg Capability | .009 | .015 | .009 | .007 |
Acquirer Brand Diversity | .054** | .026 | .035 | .042 |
Acquirer Financing Consideration | .236 | .195 | .109 | .274 |
Acquirer Firm Size | .118** | .054 | .047 | .081 |
Acquirer Sales Growth | .756 | .293 | .375*** | .141 |
Acquirer Leverage | 1.136*** | .345 | .726** | .334 |
λ | 5.654*** | .984 | 5.633*** | .755 |
p Acquirer narcissism | .058 | .156 | .063 | .095 |
p Seller narcissism | .065 | .129 | .079 | .107 |
Adjusted R-square | .392 | .458 |
AR Acquisition | AR Disposal | ||||
---|---|---|---|---|---|
Variable | Coef. | Std. Err. | Variable | Coef. | Std. Err. |
Brand Overvaluation | −.029*** | .008 | Brand Overvaluation | .038** | .013 |
Brand Awareness | .016** | .008 | Brand Awareness | −.010** | .004 |
Perceived Quality | .036*** | .008 | Perceived Quality | −.004* | .003 |
Brand Awareness* Brand Overvaluation | .003** | .001 | Brand Awareness* Brand Overvaluation | −.005** | .002 |
Perceived Quality* Brand Overvaluation | .006** | .003 | Perceived Quality* Brand Overvaluation | −.002* | .001 |
Acquirer Narcissism | −.023** | .011 | Acquirer Narcissism | −.014 | .004 |
Seller Narcissism | −.006 | .006 | Seller Narcissism | −.007 | .009 |
Deal Value | .001 | .007 | Deal Value | .011** | .005 |
Industry Relatedness | −.005 | .006 | Industry Relatedness | −.001 | .003 |
Media Coverage | .000* | .000 | Media Coverage | −.000 | .000 |
Brand Performance | .014 | .007 | Brand Performance | .016 | .012 |
Entire Firm | −.298** | .152 | Entire Firm | .329 | .256 |
Cash | .007 | .005 | Cash | .005 | .004 |
Multiple Bidder | −.014* | .008 | Multiple Bidder | .017** | .008 |
Acquirer Firm Size | −.001 | .004 | Seller Firm Size | .002 | .003 |
Acquirer Leverage | .020 | .018 | Seller Leverage | .090*** | .036 |
Acquirer Sales Growth | .054** | .026 | Seller Sales Growth | −.093*** | .035 |
Earnings Impact | −.022* | .013 | Earnings Impact | −.020* | .011 |
Motive Growth | −.003 | .023 | Motive Debt | −.211*** | .018 |
Motive Profit | .011 | .010 | Motive Buyback | −.116 | .029 |
Motive Strength | .003 | .011 | λ | .199 | .155 |
λ | −.077 | .097 | p Acquirer narcissism | .013 | .102 |
p Acquirer narcissism | .038 | .105 | p Seller narcissism | .226*** | .106 |
p Seller narcissism | .046 | .059 | κ | −.337** | .098 |
κ | −.112*** | .035 | γ | .141 | .152 |
γ | −.018 | .029 | δ | .076 | .103 |
δ | −.091** | .044 | Adjusted R-square | .523 | |
Adjusted R-square | .426 |